15 July 2009 04:46 [Source: ICIS news]
By Fanny Zhang and ?xml:namespace>
GUANGZHOU (ICIS news)--Petrochemical players in China are showing little enthusiasm to settle foreign trade transactions in yuan after it has been made available, which analysts said is portent of the currency’s long and arduous trek towards global reserve status.
On 6 July, the country officially allowed cross-border trade between companies in
While good in theory in terms of providing reprieve to some who suffered heavy foreign exchange losses on the dollar’s weakness, its usage in actual trades would be limited in the near-term, market sources and analysts said on Wednesday.
Petrochemical traders said they have mostly adopted a wait-and-see attitude on how the introduction of a new currency for trade will pan out.
“So far we don’t see the necessity to participate. We don’t know whether there’s such a demand from customers [and] it takes time for the yuan to gain enough recognition,” said a Shanghai-based chemical trader.
Yuan as a new entrant in the international trade arena faces mounting scepticism from markets long used to dollar-denominated deals.
“Any new policy would take troublesome and resource-costing procedures in initial stages,” the trader said.
Other petrochemical players were hoping for some form of incentives from the Chinese government before plunging into the new trade scheme.
“If the government provides some preferable policies like cutting taxes and service charges to participants, we would like to have a try. Otherwise, we will continue the long-standing dollar-dominated settlement,” said a source at a state-owned petroleum trading company.
For companies with subsidiaries in Hong Kong and
“We’ve submitted applications and will mainly adopt the programme to settle with overseas subsidiary companies,” said a source from a state-run chemical and oil giant Sinochem.
Given apprehensions on the use of yuan, which is not fully convertible, it would be difficult to replace the US dollar so easily in the next few years, economists said.
“Despite some nervousness about the role of the dollar, it is the only currency where the market is deep enough to accommodate the bulk of international reserves that are held by other central banks including
While the country has allowed more flexibility in its exchange rate policy since July 2005, the yuan’s movement is largely controlled through heavy government intervention and mainly pegged against the US dollar, he said.
“Maybe at some point, the Chinese would look towards allowing its currency to float freely but I don’t think it is going to confront that issue anytime soon,” Cohen said.
The fragile state of the world economy would also hinder any major policy moves from governments like adopting a new currency for trade, said Vishnu Varathan, economist at consultancy firm Forecast.
“During this time, we are not going to venture into major policies until the basics are settled,” he said.
The global economy is still in recession despite some encouraging signs of recovery, analysts said.
“Within the next five to 10 years, the yuan may develop into a status comparable to other major economies in terms of convertibility,” said Cohen of Action Economics.
But for the Chinese currency to dislodge the US dollar as prime currency for trade is another matter, analysts and petrochemical players said.
“There are economies bigger than
To discuss issues facing the chemical industry go to ICIS connect
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.
|ICIS news FREE TRIAL|
|Get access to breaking chemical news as it happens.|
|ICIS Global Petrochemical Index (IPEX)|
|ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index|
Asian Chemical Connections